Hourly Shop Rates and Real Productive Time

When you figure an hourly shop labor rate, how do you take into account unavoidable "wasted" time? May 5, 2007

How many working days do you assume in getting to the hourly rate? I've been basing mine on 8 hours per day, 40 hour week (production time), 240 days (20 days off, ex weekends). How does this compare to others?

Forum Responses
(Business and Management Forum)
From contributor J:
I use 170 hours per month. Seems to work pretty good for me.

From contributor S:
How productive are you and your people during an 8 hour day/40 hour week/240 day year? I know that we spend way too much time in re-work and unproductive labor. Some of this needs to be eliminated, but some should be factored in to the hourly rate. Overhead factors can be based on an 8 hour day, but sometimes I'm happy to get 6 productive hours from my labor force out of the 8 to 10 that they are on the clock. I think you should account for some waste factor in labor, either by raising the hourly rate at which you bid, or by adding the waste factor to the number of hours estimated. Labor costs are far and away the hardest thing to get a handle on. Productivity is vastly different from one person to another, and from one week to another.

From contributor J:
I would guess that my labor waste factor could be as high as 40% on one day and as low as 10% on another. Point being that unless you are working in a factory environment where you have very specialized job tasks, productivity is going to be an uncertainty. Thus, my shop rate would account for productive days and unproductive days.

From contributor M:
I base my rate on 8 hour days, but in factoring production time for jobs, I use 6 hours per day. I am a one man shop, and I find that I easily spend two hours a day for quoting, clean up, time off, etc... so I figure if I cost a job out that is 30 hours production time, the dollar cost is based on 40 hours of actual billable time. It seems to work okay for my one man shop. I am sure that if you had a few or more employees, that you would need a different formula than I use.

From contributor L:
We use 50 minute hours.

From contributor E:
And that is why I work a 10-12 hour day. So I can get 8 hours hands-on work done.

From contributor J:
Only 12 hours? Here it is Thanksgiving Day and I'm contemplating on getting into the shop this afternoon to catch up. Grin.

From contributor C:
Great posts. You must allow for the unproductive minutes in your hourly rate analysis. Unloading the truck, talking to the suppliers for purchasing, instructing the men, and the men listening to you, all must be covered. That's how labor rates of $50 to $80 per hour are not unreasonable. There must be a factor in the labor for rent and insurance and rags and expendable supplies, also - think about it. They just don't show up for free.

From contributor A:
I don't remember the actual hours, but I have 20% unproductive time built into my hourly rate. That is approximately 96 minutes per 8 hour day per man.